The Russia–EU gas dispute flared up in March 2022 following the invasion of Ukraine on 24 February 2022. Russia and the major European Union countries clashed over the issue of payment for natural gas pipelined to Europe by Russia's Gazprom, amidst sanctions on Russia that were expanded in response to Russia's 2022 invasion of Ukraine. In June, Gazprom claimed it was obliged to cut the flow of gas to Germany by more than half, as a result of such sanctions that prevented the Russian company from receiving its turbine component from Canada. On 26 September 2022, three of the four pipes of the Nord Stream 1 and 2 gas pipelines were sabotaged. This resulted in a record release of of methane()an equivalent of of carbon dioxide()and is believed to have made a contribution to global warming.
, the price of gas had fallen to a fraction of the 2022 peak price and whilst Russian pipeline gas exports continued to flow in small quantities via Ukraine and via the TurkStream pipeline, provided the recipient was willing to indirectly pay in rubles, the EU had found alternate sources of gas for its needs and are no longer reliant on Russia as an energy source. Arbitration cases are pending, with large claims being made against Gazprom.
Background
Europe consumed of natural gas in 2020, of which 36% (that is, ) came from Russia. In early 2022, with 23 pipelines between Europe and Russia in 2021, Russia supplied 45% of EU's natural gas imports, earning $900 million a day.
Following Russia's invasion of Ukraine in February 2022, the United States, the European Union, and other countries, introduced or significantly expanded sanctions to cut off "selected Russian banks" from SWIFT, including Gazprom bank. Assets of the Central Bank of Russia held in Western nations were frozen: the Central Bank of Russia was blocked from accessing more than $400 billion in foreign-exchange reserves held abroad.
The EU became major supporters of Ukraine, with humanitarian assistance and a growing likelihood of military assistance.
In March 2022, the European Commission and International Energy Agency presented joint plans to reduce reliance on Russian energy, reduce Russian gas imports by two thirds within a year, and completely by 2030.
In April 2022, the European Commission President Ursula von der Leyen said "the era of Russian fossil fuels in Europe will come to an end". On 18 May 2022, the European Union published plans to end its reliance on Russian oil, natural gas and coal by 2027.
Demand of payment in rubles, March 2022
On 23 March 2022, Russian President Vladimir Putin announced payments for Russian pipeline gas would be switched from "currencies that had been compromised" (that is, US dollar and euro) to payments in roubles when the transaction involved a country formally designated "unfriendly" previously, which included all European Union states; on 28 March, he ordered the Central Bank of Russia, the government, and Gazprom to present proposals by 31 March for gas payments in rubles from these "unfriendly countries". President Putin's move was construed to be aimed at forcing European companies to directly prop up the Russian currency as well as bringing Russia's Central Bank back into the global financial system after the sanctions had nearly cut it off from financial markets, essentially circumventing sanctions. ING bank's chief economist, Carsten Brzeski, told Deutsche Welle he thought the gas-for-ruble demand was "a smart move". At the end of April 2022, Russian Foreign Minister Sergey Lavrov said that the $300 billion of Gazprom's funds that had in effect been "stolen" by the "Western 'friends'" were actually the funds they had paid for Russia's gas, which meant that all those years they had been consuming the Russian gas free of charge; he thus made a point that the new payment system was designed to preclude "the continuation of the brazen thievery those countries were involved in".
On 28 March, Robert Habeck, the German Minister for Economic Affairs and Climate Action, announced that the G7 countries had rejected the Russian President's demand that payment for gas be made in rubles. On the same day, Dmitry Peskov, spokesman for the Russian president, said that Russia would "not supply gas for free".
On 29 March, it was reported that the physical gas flows through the Yamal-Europe pipeline at Germany's Mallnow point had decreased to zero. The following day, Habeck triggered the "early warning" level for gas supplies, the first step of a national gas emergency plan that involved setting up a crisis team of representatives from the federal and state governments, regulators and private industry and that could, eventually, lead to gas rationing; he urged Germans to voluntarily cut their energy consumption as a way of ending the country's dependence on Russia. A similar step was undertaken by the Austrian government. Meanwhile, Gazprom said it continued to supply gas to Europe via Ukraine. Russia's gas had also begun flowing westward through the pipeline via Poland. Russia's TASS reported that President Putin had a phone call with Germany's Chancellor Olaf Scholz to "inform him on the decision to switch to payments in rubles for gas". According to Olaf Scholz's office, President Vladimir Putin told the German Chancellor that European companies could continue paying in euros or dollars.
Decree 172 On 31 March, President Vladimir Putin signed a decreethat obligated, starting 1 April, purchasers of Russian pipeline gas from countries on Russia's Unfriendly Countries List to make their payments for Russian gas through a facility run by Russia's Gazprombank, a subsidiary of Gazprom. To pay for gas, purchaser companies from "unfriendly countries" would be required to open two accounts at Gazprombank and transfer foreign currency in which they previously made payments into one of them, which Gazprombank would then sell on the Moscow stock exchange for rubles that are deposited into the second (foreign-purchaser owned) ruble-denominated account (this currency conversion would be done in Russia).
Gazprombank would then transfer this ruble payment to Gazprom PJSC (a company that operates gas pipeline systems, produces and explores gas, and transports high pressure gas in the Russian Federation and European countries), at which point the purchaser would be deemed to have legally fulfilled (under Russian law) its obligations to pay. Gas purchasers were thus still able to make payments by transferring foreign (non-ruble) currencies, including the currencies stipulated by their contract, which in most cases were US dollars and euros. Despite this, the obligatory new payment mechanism introduced by decree 172 has been colloquially referred to as a "demand to pay in rubles" by many media outlets.
The natural gas contracts stipulated the currency in which payments to Gazprom were to be made − 97% of which were in US dollars or euros − as well as the accounts into which the payments were to be deposited, which were Gazprom-owned accounts at Western financial institutions. These accounts had been frozen by international sanctions and any payments deposited into these accounts would also be immediately frozen, whereas payments deposited into these Gazprombank accounts (located in Russia) would be accessible to Gazprom, which would circumvent these international sanctions.
The first post-1 April payments were due near the end of April and in May. Putin stated that any country refusing to use the new payment mechanism would be in violation of their contracts and face "corresponding repercussions". The Russian government would consider a failure to pay to be a default and the existing contract would be terminated. The decree allowed exceptions to be made for buyers that would permit them to pay as before.
On 29 April 2022, a spokesperson for the German Economy Ministry said a payment through an account (such as stipulated by decree 172) is in line with sanctions when (1) “contracts have been fulfilled with payment in euros or dollars", with a government source clarifying further that (2) "it was irrelevant in which country [... that] account is opened [at a bank] as long as the bank in question was not on any sanctions list."
Gas delivery disruption, April 2022 – present On 26 April 2022, Gazprom announced it would stop delivering natural gas to Poland via the Yamal–Europe pipeline and to Bulgaria from the following day as both countries had failed to make due payments to Gazprom in rubles.
Poland said it did not expect to experience disruptions due to its natural gas storage facilities being about 75% full (ensuring 40–180 days of supply), the Poland–Lithuania gas pipeline becoming operational in May 2022, and the Baltic Pipe natural gas pipeline between Poland and Norway becoming operational in October 2022, which would make Poland fully independent of Russian gas. Poland could also import gas via the Świnoujście LNG terminal in the city of Świnoujście in the country's extreme north-west. Meanwhile, Bulgaria was almost completely dependent on Russian gas.
The following day, Gazprom announced that it had "completely suspended gas supplies" to Poland's PGNiG and Bulgaria's Bulgargaz "due to absence of payments in roubles". Bulgaria, Poland, and the European Union condemned the suspension. The announcement of the suspension caused natural gas prices to surge and the Russian ruble to reach a two-year-high against the Euro in Moscow trade.
On 11 May 2022, Ukraine's state-owned gas grid operator GTSOU halted the flow of natural gas through the Sokhranovka transit point, which had transported about one third of all of piped Russian natural gas that transited through Ukraine. It was the first time since the start of Russia's 24 February invasion of Ukraine that natural gas flow through Ukraine was interrupted. The Ukrainian government stated that it would not reopen this pipeline unless it regained control of areas from pro-Russian fighters. On the same day, Russia imposed sanctions on European subsidiaries of Gazprom which had been nationalized by European countries.
On 20 May 2022, Gazprom announced that it had informed Finland that the next morning, natural gas deliveries to the country would be halted due to the refusal of the Finnish state-owned gas wholesaler to pay in rubles (that is, to comply with decree 172). Natural gas accounted for 5% of Finland's total annual energy consumption, with the majority of this natural gas being supplied by Russia.
On 14 June 2022, Gazprom announced it would be slashing gas flow via the Nord Stream 1 pipeline, due to what it claimed was Siemens’ failure to return compressor units on time that had been sent off to Canada for repair. The explanation was challenged by Germany's energy regulator.
On 16 June 2022, European benchmark natural gas prices increased by around 30% after Gazprom reduced Nord Stream 1's gas supply to Germany to 40% of the pipeline's capacity. Russia warned that usage of the pipeline could be completely suspended because of problems with the repairment.
On 11 July 2022, Nord Stream 1 was turned off for scheduled annual maintenance, but remained off after the usual repair period. The Siemens pipeline turbine was repaired in Canada. Due to sanctions, Canada could not deliver the turbine back to Russia after repair works and instead sent it to Germany, despite the call of Volodymyr Zelenskyy to maintain the sanctions.
On 26 September 2022, both pipes of the Nord Stream 1 pipeline, and one of the two pipes of the Nord Stream 2 pipeline, which connect Russia and Germany, ruptured in the Baltic Sea. Nord Stream 1 had been operating at a significantly reduced capacity and then closed for weeks, and Nord Stream 2 was not operating, but both still contained gas. As of 7 October 2022, Swedish investigators said evidence pointed to sabotage.